Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Eaton Poised to Grow

Eaton expects to cash in on rebounding U.S. markets.

Industrial electrical equipment maker Eaton(NYSE: ETN) missed Street expectations for its bottom line in the most recent quarter and earnings estimates for 2012. However, once you look beyond these figures, Eaton does look like a potential long-term outperformer. Here's why...

A peek at the numbersIn the fourth quarter, Eaton's sales increased to $4 billion, a decent 10% rise compared to last year. However, earnings of $1.08 per share fell short of analyst estimates of $1.11 per share.

Sales were soft on account of weak demand for Eaton's electrical products across U.S., Europe, and China. While weakness in its home market is attributable to the delay in major shipments, the company's international sales declined 6% affected by the European debt crisis and China's reduced spending.

Lower sales were partially offset by improved operational efficiencies, and profits rose 29% to $362 million in the quarter on a year-on-year basis. While the company is effectively managing costs, top-line growth may be a drag on the bottom line in the short term.

China slowing, not yetBecause of inflationary pressures in China, the government is curbing credit in the country, which has hurt the sales of several U.S. companies that have invested in China. For instance, industrial conglomerate 3M(NYSE: MMM) recently saw a dip in its consumer electronics segment primarily related to China-based sales. While China may be slowing, it is still growing at a substantial 8.1%, and most companies expect sales to rebound in the second half of 2012.

U.S. on the reboundThings are looking up on the home front, too. Non-residential construction in the U.S. is picking up on higher demand for new projects, and increased passenger traffic is pushing volumes in commercial aerospace. Eaton also expects strong demand in its hydraulic and automotive segments in the near future.

With international sales expected to stabilize and U.S. sales on the rebound, Eaton's future still looks bright, and I think the company is well-positioned to exploit the upcoming opportunities. What do you think?